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Gate.io Research - Crypto ETFs: A Game Of Benefits and Risks

2020-04-16 14:25:03Read:70378

It was less than one year ago that the crypto ETF market was born. Since then, it captured the attention of a significant number of investors due to its convenient operation and high profits. According to analysis, leveraged ETF trading not only brings more substantial gains in a singular market move but also causes a milder loss than margin trading with the same leveraged ratio when the market goes either way. Nonetheless, in the simulation of this research, leveraged ETF trading suffered more severe losses in a volatile market, which exceeded that of spot trading and margin trading in the same ratio. Compared with multiple ETF products in the traditional financial market, currently, the cryptocurrency market has only rolled out the leveraged ETF that is mainly centered on mainstream currencies. Besides, the crypto ETF market is still immature, along with the high handling fees as opposed to the twenty-year development of the traditional market. Given that leveraged ETFs are not suitable for a long-term hold, Gate.io research has built a VPIN model combined with the Moving Average (MA) and found that VPIN can mitigate the risks accordingly and considerably increase the benefits of ETF. However, since the crypto ETF has not yet obtained approval from a supervising organization, the policy trend will be a focus in the future.

Key Takeaways

- In comparison with ETF funds of 1988 in the US market, which occupies 3.4 trillion USD of the market, there are “only” dozens of ETF products in the cryptocurrency industry, which is at its primary stage. Thus, it appears that there will be more types of crypto ETFs provided in the future, which are likely to run in a direction that is similar to that of the traditional financial products.
- In a singular market move, if the price of leveraged ETFs as expected, investors can gain more substantial profits than those in a margin trading with the same leveraged ratio. Additionally, if the price of leveraged ETFs goes in the opposite trend, the incurred losses are milder than those of margin trading with the same leveraged ratio.
-In a volatile market, leveraged ETF trading suffered more severe losses, which exceeded that of spot trading and margin trading in the same ratio. Hence, it is not suitable to invest in leveraged ETFs when the market fluctuates.
-It can be seen that crypto ETF products incur more risks compared to leveraged ETFs in the US stock. Thereby, when being confronted with a market swing, the exchanges will even suffer potential losses.
-The VPIN coefficient of BTC lies between 0.4 and 0.6 most of the time, which means the current informed trading takes up about a half in the BTC market. Through analyzing the fierce volatility of BTC, it can be concluded that VPIN has a relatively effective prediction for short-term trading.
-Gate.io research has built a VPIN model to observe the benefit variation of the ETF. According to the results, trading that refers to the VPIN coefficient makes it possible to gain massive profits and reduce the risk of drawdown.
-Up until now, the crypto ETFs have not been approved by Law in any country, and the prosperous development of the crypto ETF market requires the support of supervising organizations.

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Gate.io
April 16, 2020

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